HMRC continue to target small businesses – are you ready for a visit?

According to recent reports HMRC has increased the number of small business investigations and they continue to be seen as soft targets.

About 7% of tax inspections are random, the majority are triggered because HMRC believes that something is wrong.

What can you do to reduce your chances of being selected:

1. File your tax returns on time and pay what you owe – If you file late or at the last minute HMRC will think you are disorganised and as such there are more likely to be errors in the return

2. Declare all your income – HMRC get details of bank interest and other sources of income, sometimes they test them and match them to returns

3. Use an accountant – Unrepresented taxpayers are more likely to be looked at, mainly because many of them don’t know what they are doing

4. Trends – if your business doesn’t match the profile of similar business in the same sector or your results suddenly fluctuate it could raise concerns at HMRC, for example, if you suddenly request a VAT refund

You might also consider tax investigation insurance, FSB include tax investigation insurance as a member benefit, they also have some great advice if you do get selected

http://www.fsb.org.uk/library-images/default-source/default-album/tips-for-dealing-with-a-tax-investigation7ad986ba4fa86562a286ff0000dc48fe.jpg

steve@bicknells.net

HMRC changes the rules again on the Employment Allowance!

The employment allowance was introduced in April 2014 and employers can save up to £3000 in employers national insurance.

The problem is that HMRC wanted to stop one-person businesses from getting the allowance and from the 6th April 2016 new rules came into place.

However, many one-person business thought that employing another person, for example their Spouse would get round the rules.

So HMRC have tightened the rules a bit more in their Employer Bulletin April 2016 and set out the rules for employing another person.

https://s-media-cache-ak0.pinimg.com/736x/4b/6b/80/4b6b807b736e45ad703772b9782002ab.jpg

steve@bicknells.net

What defines good management accounting?

CIMA CGMA members are qualified to work across an organisation, not just in finance. In addition to strong accounting fundamentals, CIMA teaches strategic business and management skills:

Analysis – they analyse information and using it to make business decisions.
Strategy – they formulate business strategy to create wealth and shareholder value.
Risk – they identify and manage risk.
Planning – they apply accounting techniques to plan and budget.
Communication – they determine what information management needs and explain the numbers to non-financial managers.

Now we have the worlds first management accounting standard.

BSI, the business standards company, has published PAS 1919:2016 Guide to management accounting principles. The guide which was sponsored by CIMA (Chartered Institute of Management Accountants) also saw collaborative input from such organizations as Environment Agency, Fujitsu, NHS and Siemens.

Designed as a best-practice guide to management accounting, defining what “good” looks like, PAS 1919 provides organizations with a framework to support their decision making and contribute to overall improved performance and sustained success.

David Fatscher, Head of Market Development for Sustainability and Services at BSI said: “CFOs have much more reporting responsibility than they once did and the management accounting function is now an integral part of an organizations strategic planning. PAS 1919 outlines the key principles and activities they have to deliver on to assure stakeholders of sustainable business performance.”

The PAS sets out four outcome-based management accounting principles, and provides a basis on which organizations can set their own benchmarks for the management accounting function.

Communication provides insight that is influential – encouraging insightfulcommunication that drives better decisions across an organization

Information is relevant – reviewing past, present and forward looking performance management information

Impact on value is analysed – understanding an organization’s strategy and business model

Stewardship builds trust – balancing short-term commercial interests against long term value for stakeholders

Tony Manwaring, CIMA’s Executive Director, External Affairs, said: “This sets the standard for decision making around the world. The content of PAS 1919 represents best practice management accounting and enables organizations to take decisions that drive value in the short, medium and long-term.”

SCA Group are now working with CIMA and taking part in the Global Management Accounting Principles:

1. Self-assessment Tool Pilot Community

2: Pioneer Advocates

The team at SCA are excited to be involved the project and to use the tools to improve their management accounting.

steve@bicknells.net

The tax advantages of Furnished Holiday Lets

There are special tax rules for rental income from properties that qualify as Furnished Holiday Lettings (FHLs).

If you let properties that qualify as FHLs:

you can claim Capital Gains Tax reliefs for traders (Business Asset Rollover Relief, Entrepreneurs’ Relief, relief for gifts of business assets and relief for loans to traders)
you are entitled to plant and machinery capital allowances for items such as furniture, equipment and fixtures
the profits count as earnings for pension purposes

https://www.gov.uk/government/publications/furnished-holiday-lettings-hs253-self-assessment-helpsheet/cvgg

In addition:

The Interest Rate Relief Restrictions don’t apply – these rules only affect Buy to Let Investors

The letting condition

You must let the property commercially as furnished holiday accommodation to the public for at least 105 days in the year (70 days for the tax year 2011 to 2012 and earlier).

The availability condition

Your property must be available for letting as furnished holiday accommodation letting for at least 210 days in the year (140 days for the tax year 2011 to 2012 and earlier).

But the extra stamp duty will apply

Furnished holiday lets

The government proposes that properties bought as furnished holiday lets should be treated in the same way as all other residential properties – if the property is purchased as an additional property the higher rates will apply.

A Company could help you save tax

The current rate of Corporation Tax is 19%.

Not only that, its the same rate no matter how many companies you have, previously when there were multiple Corporation Rate if you had associated companies the small companies rate was reduce in a marginal rate calculation.

Stamp Duty (SDLT) on selling Shares is 0.5%.

Example – So £1,995 × 0.5% = £9.97. This is rounded up to the nearest £5, which means you pay £10 Stamp Duty.

https://stevejbicknell.com/budget-2016/budget-3/

HMRC have a calculator, here is link

http://www.hmrc.gov.uk/tools/sdlt/land-and-property.htm

One of the big benefits of Shares is that its easy to split ownership.

Potentially Exempt Transfers (PET’s) allow you to give away shares provided you survive more that 7 years after the transfer, shares make PETs easy and simple.

When you give away shares it will potentially trigger a capital gain but you will be able to use your personal capital gains allowance of £12,300 to offset this gain.

steve@bicknells.net

Have your employees got a S336 tax claim?

Basically, if an employer makes a declaration on the P11D, which the employee and HMRC agree can be counted as tax deductible, this is referred to as a S336 Claim. In order to claim the employee would need to show the expense was wholly and exclusively for business.

Here are some suggestions of expenses employees may claim….

Flat Rate Expenses by Occupation – HMRC have a list EIM32712 for example Healthcare staff in the National Health Service, private hospitals and nursing homes – Uniformed ancillary staff: maintenance workers, grounds staff, drivers, parking attendants and security guards, receptionists and other uniformed staff – get a flat rate of £60 per year – this link explains how it works – Money Saving Expert
Mileage in your own vehicle on business – the approved rates are list below if your employer pays you mileage already deduct the rate from the amounts below and claim the difference

Tax: rates per business mile

Type of vehicle	First 10,000 miles	Above 10,000 miles
Cars and vans	45p (40p before 2011 to 2012)	25p
Motorcycles	24p	24p
Bikes	20p	20p

3. Professional Subscriptions – if you personally pay for a professional subscription that you need for your work you can claim the cost against tax – here is a list of HMRC approved professional organisations

4. Traveling Costs – you may have business travel costs for hotels and meals that haven’t been reimbursed and these costs can be reclaimed against your tax

5. Working from Home – maximum of £4 per week

6. Uniform not covered by a Flat Rate – read this blog

7. Training – where training was an intrinsic contractual duty of the employment (see also EIM32535 & EIM32546) and where any personal benefit, unlike most CPE/CPD courses, would be incidental and not therefore give rise to a dual purpose of the expenditure.

8. Other costs – where the cost is wholly and exclusively for business

Form P87

If you are an employee use this form to tell HMRC about employment expenses you have had to pay during the year for which tax relief is due.

Only fill in this form if your allowable expenses are less than £2,500 for the year.

If your claim is more than £2,500 you will need to fill in a Self Assessment tax return. Please contact the Self Assessment Helpline on 0300 200 3310 or register at

http://www.hmrc.gov.uk/online

You must fill in a separate P87 for each employment for which you are claiming.

If you have not paid any tax during the year no refund will be due.

steve@bicknells.net

If you’re a Landlord get an accountant now!

Last week the Bank of England turned up the heat on Landlords.

The Bank of England expressed concerns about Buy-to-Let Investment and lending levels. New rules have been proposed that aim to tighten requirements for landlords involved in investment properties and limit the amount that can be borrowed for these types of endeavours.

This reaction comes from recent suggestions that mass buy-to-let property management could have a destabilising effect on the UK economy.

The rules put a spotlight on lenders, encouraging them to require more extensive financial information from the potential landlord before granting a mortgage.

The requirements go beyond ensuring the rental income of the property is significantly higher than the mortgage payments (the income coverage ratio), to also considering an individual’s overall financial situation.

The Prudential Regulation Authority (PRA) – an arm of the Bank – has recommended that banks and building societies take account of:

all the costs a landlord might have to pay when renting out a property

any tax liability associated with the property

a landlord’s personal tax liabilities, “essential expenditure” and living costs.

a landlord’s additional income – where this is being used to support the borrowing. This income should be “verified”.

If adopted, the new rules could reduce lending to landlords by up to 20% over the next three years.

https://debitoor.com/blog/how-use-debitoor-property-accounting

Landlords have already been hit but tax changes…

Buy to Let Stamp Duty

Prop Value	Std Rate	B2L Rate
< £125,000	0%	3%
£125k to £250k	2%	5%
£250k to £925k	5%	8%
£925k to £1.5m	10%	13%
Over £1.5m	12%	15%

A 3% surcharge on stamp duty when some buy-to-let properties and second homes are bought will be levied from April 2016.

This means it will add £5,520 of tax to be paid when buying the average £184,000 buy-to-let property. The new charge would have hit 160,000 buyers if it had applied last year.

But, commercial property investors, with more than 15 properties, will be exempt from the new charges.

Stamp Duty on Selling Shares is 0.5% so why aren’t more investors buying property into companies and then selling the shares in the company!

Mortgage Interest

Mortgage Interest offset against property income will be restricted

2017/18

75% of the interest can be claimed in full and 25% will get relief at 20%

2018/19

50% of the interest can be claimed in full and 50% will get relief at 20%

2019/20

25% of the interest can be claimed in full and 75% will get relief at 20%

2020/21

100% will get only 20% relief

For a 20% tax payer that’s fine but for higher rate taxpayer it’s a disaster that will lead to them paying a lot more tax

These rules will not apply to Companies, Companies will continue to claim full relief.

Capital Gains

From April 2016, the higher rate of Capital Gains Tax will be cut from 28% to 20% and the basic rate from 18% to 10%.

There will be an additional 8% surcharge to be paid on residential property.

Capital Gains Tax on residential property does not apply to your main home, only to additional properties (for example a flat that you let out).

Wear & Tear

Landlords have been used to claiming 10% of rental income as a tax deductible wear and tear allowance, but that will change in April 2016.

The Wear and Tear Allowance for fully furnished properties will be replaced with a relief that enables all landlords of residential dwelling houses to deduct the costs they actually incur on replacing furnishings, appliances and kitchenware in the property.

The relief given will be for the cost of a like-for-like, or nearest modern equivalent, replacement asset, plus any costs incurred in disposing of, or less any proceeds received for, the asset being replaced.

What could a Property Investor do to reduce the impact of these changes?

Incorporation – could you save money by incorporating your residential investments, would you qualify for incorporation tax relief
Pension Contributions – Pension Contributions currently receive tax relief at your rate of tax – 20% to 45% – so if you are a 40% tax payer you would need pay half the value of your 20% restricted interest into your pension to mitigate the extra tax
Change of Use – would your Buy to Let be able to be converted to a Furnished Holiday Let? or another type of commercial property on which the interest restriction won’t apply
Increasing the Rent – Could you charge more to cover the extra taxes?
Spouse Income Tax Elections – If the property is jointly held HMRC assume a 50/50 split of the income but you can change that using Form 17 this might be useful if one of you is a basic rate taxpayer and the other a higher rate taxpayer
Tax Deductible Expenses – Many landlords overlook expenses at the moment but they could become a lot more important, for example, use of your home, motor expenses, computers, travel and subsistence, phone costs etc

steve@bicknells.net

What is the optimum salary for 2016/17?

There have been several tax changes in the Budget:

Changes to Personal Allowances –
The Personal Allowance is the amount of income you can earn before you start paying Income Tax. This is currently £10,600 – it will already rise to £11,000 in 2016, and will now increase further to £11,500 in April 2017.

The point at which you pay the higher rate of Income Tax will increase from £42,385 to £43,000 in 2016 and to £45,000 in April 2017.
Employment Allowance – The employment allowance is £3,000 but there is a restriction on it being used by single person companies.
Dividend Tax -From April 2016 you’ll pay tax on any dividends you receive over £5,000 at the following rates:
- 7.5% on dividend income within the basic rate band
- 32.5% on dividend income within the higher rate band
- 38.1% on dividend income within the additional rate band
This simpler system will mean that only those with significant dividend income will pay more tax.

The Dividend Allowance will not reduce your total income for tax purposes. However, it will mean that you don’t have any tax to pay on the first £5,000 of dividend income you receive.

Dividends within your allowance will still count towards your basic or higher rate bands, and may therefore affect the rate of tax that you pay on dividends you receive in excess of the £5,000 allowance.

These changes also make it more complicated in deciding whether to incorporate, so I have added a new calculator to help you decide http://stevejbicknell.com/tax-calculators/

The £5,000 dividend allowance is a bit confusing because its an allowance and not an exemption, so it becomes part of your overall income.

Basically, most small business owners will either choose £8,060 as a salary (free of tax an NI) or £11,000 (tax free)

Because your salary is tax deductible in companies the difference £11,000 – £8,060 = £2,940 plus 13.8% NI = £3,345.72 which saves 20% corporation tax = £669.14

There will be NI to pay 12% employee and 13.8% employer = 25.8% x £2,940 = £758.52 – £669.14 = £89.38 net tax

Beyond this you will pay income tax at 20%.

So in summary, I think the optimum salary is £11,000.

Above this you should take dividends.

This is a simplification and you should speak to your accountant about your specific tax affairs.

Steve@bicknells.net

Have you got a week 53 in 2016?

In the 2015/2016 tax year, you have a week 53 if the following applies:

Your normal pay day is a Monday or Tuesday and…

You last processed your weekly paid employees on Monday 28 March 2016 or Tuesday 29 March 2016.
You last processed your fortnightly paid employees on Monday 21 March 2016 or Tuesday 22 March 2016.
You last processed your four weekly paid employees on Monday 7 March 2016 or Tuesday 8 March 2016.

‘Week 53’ payments

If you pay your employees weekly, fortnightly or every 4 weeks, you might need to make a ‘week 53’ payment in your final FPS of the year.

Your payroll software will work out ‘week 53’ payments for you.

In the ‘Tax week number’ field of your FPS, put:

‘53’ if you pay your employees weekly
‘54’ if you pay them fortnightly
‘56’ if you pay them every 4 weeks

steve@bicknells.net

Travel and Subsistence tax restrictions starting in April 2016

It’s estimated that 430,000 contractors will be affected by the new rules!

Under the new rules certain groups of workers will no longer be able to claim tax relief on travel and subsistence expenses, specifically:

Those employed via umbrella companies (employment intermediaries).
If you personally provide services to another person.
The draft legislation confirms that limited company contractors are not affected by this new restriction, except for any contract work they carry out which is caught by the IR35 rules.

We expect that the new rules will prevent claims for routine travel but allow exceptional travel. For example say you normally work in London that would be excluded but they you have to go to a meeting in Birmingham, that trip should be allowed.

steve@bicknells.net

Contractors in the Public Sector will have to pay more tax!

In the Budget 2016 George Osborne announced that as from April 2017 it will be the duty of the Public Sector to make sure Personal Service Companies and Intermediaries pay the correct tax.

The government announced at Budget 2016 that it will reform the intermediaries legislation (known as IR35) for public sector engagements. It will do this by moving the liability to pay the correct employment taxes from the worker’s own company to the public sector body or agency / third party paying the company. In partnership with stakeholders, HM Revenue and Customs will develop a new tool that will make the decision on whether or not the rules should apply as simple as possible and provide certainty. A formal consultation will be published later. [Technical Note]

The organisations checking intermediaries will include:

Government departments, legislative bodies, armed forces
Local government
NHS
Schools and further and higher education institutions
Police
The British Museum, BBC, Channel 4
Transport for London
Publically owned bodies

It will be the engagers duty calculate the deemed employment income.

Here are 3 examples…

Will this lead to higher taxes for contractors? will they be converted to employees?

steve@bicknells.net

Bicknell Business Advisers Limited

40 Broadway Lane, Bournemouth

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Pablo Alonso ★★★★★ 2 months ago
I have known Steve for a couple of years and he has always been very helpful. He is pro-active and very knowledgeable. His advice is certainly top and I completely recommend him
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As is often the case, the most valuable business relationships are generated by word of mouth. Working as a Director of the Southern Electric Traction Group C.I.C in London, Bicknell Business Advisers Limited were recommended to me by a … More fellow business owner. I am truly grateful for that recommendation. I can honestly say that the guidance and support we have received from the team have been instrumental to our work and we would be in a considerably lesser position without them.
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Where do I start? Steve, Kate, and their team are professional and tenacious. They go above and beyond to make sure you file correctly and file on time, as well as advising on anything financial. If you're looking for a top quality … More accountant, look no further, they're right here.
Izan Coomonte Suárez ★★★★★ 11 months ago
I would recommend Steve 100% to anyone! He's the best advisor and tax professional I've found in many years. As a Spanish citizen, he has helped me a lot not only become very efficient with my taxes but also understand how the … More UK Tax system works!
He is friendly, professional and delivers a lot of value to the people he works with.
Mutaz Qubbaj ★★★★★ a year ago
Steve and his team have been an invaluable asset to Squirrel as of day 1. They never cease to hit the mark when it comes to our accounting, payroll and R&D-related needs. The depth of knowledge and expertise to address the challenges … More of running a small business on the path to becoming a growing concern has exceeded expectations. The team is extremely approachable and willing to drill into the details with myself and members of my team at every opportunity.
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I have known Steve Bicknell for around 20 years and have always found
him to be an extremely knowledgeable professional, with a down to earth
approach - always able to explain technical info in a way that is easy to understand.
I always … More recommend him to friends and business acquaintances and will continue to do so, as a person of integrity and professionalism.